VAT is a tax that is charged on most goods and services that VAT registered businesses provide in the UK. When a VAT registered business makes a sale VAT will be charged, this is then payable to HMRC as a tax on the sale made. When a VAT registered business buys goods or services they can reclaim the VAT they've paid from HMRC. VAT is declared to HMRC by way of a quarterly return and any VAT due to HMRC will also be paid at that time.
When using the standard VAT scheme the VAT a business pays to HMRC (or claims back from them) is the difference between the VAT you charge your customers and the VAT you pay on your purchases. When you opt to use the VAT flat rate scheme you pay VAT as a fixed percentage of your VAT inclusive (gross) turnover. The actual percentage you use depends on your type of business.
Typically contractors operating through a limited company will incur minimal VAT on their expenditure so being registered on the VAT flat rate scheme will increase the profits their company makes.
When using the standard VAT scheme a business will pay VAT on any invoices it has issued regardless of if it has received payment from its customer. A business would also be able to reclaim VAT from HMRC on any invoices received, even if it has not yet made payment to their supplier.
By being registering to use the cash accounting scheme a business would only pay VAT on its sales invoice when their customers have actually made payment to them. The business could also only reclaim VAT on its purchases when it has made payment to its suppliers.
Many small businesses choose to register for the scheme as it can help improve cash flow which is something that many small and new businesses struggle to control and maintain.